VIGO G. (CHIP) NIELSEN, JR. is the senior political/election law partner of Nielsen Merksamer. His firm specializes in state government advocacy, trial and appellate litigation, regulatory agency and tax policy, civil and constitutional voting rights and redistricting, and employment law. For 30 years, he has been Co-Chair of PLI’s “Corporate Political Activities” seminar. He is widely published in political law and is, or has been, a member of the Board of Directors of the A.B.A. Committee on Election Law, University of California’s Institute of Governmental Studies, American Association of Political Consultants, Citizens Research Foundation, California Journal, Bay Area Council and North Bay Council. He has been actively involved in California state politics and government as a campaign manager and a political lawyer to politicians and government leaders as well as serving as Chief Administrative Officer for the California Assembly, Assistant Deputy State Controller and Chief of Staff to the Lieutenant Governor. He is an honors graduate of Yale and received his J.D. from the University of the Pacific, McGeorge School of Law.
JASON D. KAUNE is a partner in the firm specializing in political law and ethics, lobbying, election and campaign finance laws in the 50 states, and on the local and federal levels. He advises corporations, advocacy groups, individuals and governments, with a focus on establishing and maintaining multi-jurisdictional compliance systems. He has contributed to the PLI Corporate Political Activities course book since 2000 and is author of an annual 50 state compendium of campaign finance law developments for the Council of Governmental Ethics Laws. He has authored articles and studies on lobbying regulation in Russia, public contracting, preemption of local campaign finance laws and the White House Counsel's office. He has served as a speechwriter in Washington D.C., a policy advisor for a state governor, and in the non-profit sector. He earned advanced degrees from Harvard University, John F. Kennedy School of Government and University of California, Hastings College of the Law and graduated with honors from Yale College.
DARRIN LIM is an associate with the firm’s political law section, where he specializes in national compliance issues relating to campaign, lobbying and ethics laws. Mr. Lim is co-author of an annual 50 state compendium of campaign finance law developments for the Council of Governmental Ethics Laws. Mr. Lim previously served as the Communications Director for a state legislator in both the California State Assembly and Senate. Before that he was the main anchor and reporter for a station in Southern California. Mr. Lim received his BA in Broadcast Journalism and Political Science from the University of Southern California and graduated with honors from the University of the Pacific, McGeorge School of Law.
C. GOVERNMENT CONTRACTOR RESTRICTIONS (“Pay-to-Play”) 10
D. CONTRIBUTOR REPORTING REQUIREMENTS 14
E. TRANSMITTAL LETTERS 15
III. FEDERAL PACS 17
A. REGISTRATION 17
B. REPORTING ON FEDERAL DEADLINES 18
C. REPORTING ON STATE DEADLINES 18
D. FORMING A SEPARATE STATE PAC 19
E. REPORTING NOT NECESSARY 19
IV. JUDICIAL ELECTIONS 20
V. OTHER RESOURCES 21
APPENDIX A: STATE-BY-STATE OVERVIEW 22
APPENDIX B: SAMPLE TRANSMITTAL LETTERS 41 I. INTRODUCTION
A. STATE VERSUS FEDERAL LAW
Other chapters in this book concerning campaign finance law cover federal law. Except as discussed below, federal campaign finance laws generally do not apply to candidates running for state or local office. State and local laws cover these elections.
The only federal law provisions that apply beyond federal elections are discussed in the chapter in this book on "Overview of Federal Campaign Finance: Contributions and Expenditure Limitations." These federal provisions (1) prohibit contributions to state and local candidate campaigns from corporations organized by a law of Congress (federal savings and loan, etc.) or is a national bank, (2 U.S.C. 441b) and (2) prohibit foreign nationals from making contributions in any state or local campaign. (2 U.S.C. 441e; Title 11 of the Code of Federal Regulations, sections 110.4(c), 110.20.)
Importantly, when federal PACs contribute to state and local candidates, they must adhere to state and local contribution limits and reporting requirements. These requirements are discussed in Section III of this chapter.
B. STATE VERSUS LOCAL LAW
State laws usually apply to campaigns for state office (such as governors and legislators) as well as to campaigns for local offices. However, state laws often allow local jurisdictions to impose their own, more restrictive laws than those under state law. Some states leave local campaign finance regulation entirely to local officials.
Many local jurisdictions have therefore adopted their own, unique campaign finance laws -- not only political subdivisions of the state (counties, municipalities, school districts, etc.), but also special districts such as transit and port authorities. When contributing to a candidate for such local government elected boards and commissions, you should research whether any local laws apply to officials in the jurisdiction, similar to the state laws discussed in this chapter.
State and local jurisdictions have experimented with complex systems, such as public financing for “clean elections” and “instant disclosure” through the Internet. These experiments have had mixed results.
C. FIVE AREAS OF CONCERN
Given the diversity and ever-changing nature of state and local campaign finance law, this chapter can only briefly summarize state and local campaign laws. These five areas of concern, discussed in Section II, warrant close examination by corporations active on that level:
Government Contractor Restrictions (“Pay-to-Play”)
Contribution Reporting Requirements
II. FIVE AREAS OF CONCERN
A. CONTRIBUTION LIMITS AND PROHIBITIONS
Many states limit the amount a contributor may give a candidate, PAC or political party. Some prohibit contributions from all corporations, some limit contributions from individuals or federal PACs, and some prohibit certain kinds of corporations from making contributions (utilities, gaming enterprises, contractors and bidders for contracts within the jurisdiction, etc.). Additionally, some jurisdictions cap the total amount a contributor may give to all recipients for a single election cycle.
The following 30 jurisdictions (28 states, the District of Columbia and the Virgin Islands) generally allow corporate contributions:
New Mexico*; **
* Indicates that corporate contributions to candidates are generally permitted in unlimited amounts. (See Appendix A.)
** Indicates that certain “regulated entities” or non-resident companies may be restricted in making contributions. (See Appendix A.)
The following 22 states generally prohibit corporate contributions but allow contributions from corporate federal PACs* or separate state PACs set up to specifically comply with the state law:
* See Section III for state and local registration and reporting requirements for federal PACs that contribute to state and local candidates.
State laws usually contain a number of specific prohibitions and limitations similar to federal law relating to anonymous and cash contributions and contributions in the name of another. State laws also usually include a number of exemptions in their definition of "contribution" along the same lines as the federal laws as described in the chapter in this book on "Contribution and Expenditure Limitations." Some jurisdictions provide special allowances for contributions to party committees.
To minimize your worry about most of these specific contribution requirements, a contribution should be made by a check of the actual contributor and sent with a transmittal letter as discussed below.
The chart in Appendix A summarizes the laws relating to campaign contributions in all fifty states plus the District of Columbia and the Virgin Islands.
Time. Many states have enacted laws prohibiting contributions in non election years or when their legislature is in session (some prohibitions begin some days before the session and continue for some days after the session) to avoid appearances of impropriety. Although courts have struck down some of these timing limitations, legislatures often reimpose the limits on themselves. See Appendix A.
Place. Other states also ban contributions in public buildings or even in capitol cities, unless certain conditions are met. See Appendix A.
Person. Many states have concerns that certain individuals (such as lobbyists) have too much "influence" at state capitols and place contribution restrictions on persons like lobbyists and on certain donors like utilities, gaming corporations or those with contracts with the agency or seeing contracts. See Appendix A.
C. GOVERNMENT CONTRACTOR RESTRICTIONS (“Pay-to-Play”)
In recent years, an increasing number of jurisdictions have enacted so-called “pay-to-play” laws concerning the political activity of government contractors. Such laws respond to a belief that some government contractors make campaign contributions to elected officials to improve their chances of being awarded contracts or renewals with the jurisdiction. Procurement scandals in various states have prodded rigorous and various prohibitions, restrictions and disclosures.
At least 11 states have enacted laws concerning campaign contributions from prospective or current government contractors to public officials with ultimate authority to make decisions impacting the donor. These laws fall into two general categories, discussed further below: (1) Restrictions and (2) Disclosure.
$ De minimis amounts may be permissible. Others are prohibitions.
When considering compliance with these campaign finance provisions, it is important to also consider lobby and procurement laws, as these areas often overlap. For example, New York has extensive restrictions on government contractors, including “black out periods,” which limit communications with the state during the RFP process. Information on jurisdictions that consider attempts to influence a government contract as “lobbying,” such as New York, is covered in the chapter on State Lobby and Gift Laws.
Restrictions: Disqualification and/or Prohibitions. Many “pay-to-play” laws are disqualification-type provisions aimed at current or prospective government contractors making campaign contributions to officials responsible for the award of public contracts.
Since the 1980s, California law has triggered disqualification by contributions of over $250 during a 12-month rolling period to state or local public officials participating in decisions concerning licenses, permits or other entitlements while sitting on appointed boards or commissions. Additional prohibitions and disclosures apply. Other agencies and jurisdictions (particularly in California) have adopted similar approaches. However, these disqualification-type provisions did not become a widespread national trend, as some expected.
In the 1990s the Municipal Securities Rulemaking Board (“MSRB”), an industry self-regulatory body whose regulations are reviewed by the Securities and Exchange Commission, adopted Rule G-37. That rule disqualifies brokers, dealers and municipal securities dealers (collectively referred to as "dealers"), municipal finance professionals ("MFP"), and political action committees controlled by the dealer or any MFP from being awarded contracts by a public official’s agency if he or she has received $250 from those sources in the last four years. The MSRB rules are discussed in another chapter of this book.
This decade has brought a new wave of pay-to-play laws, particularly in Connecticut (amended effective February 2007), New Jersey, and Ohio (expanded effective April 2007). These laws can reach personal campaign contributions made by affiliates of a government contractor (including major stockholders board members, senior executives, and/or even their family members) in addition to the company itself. Some include de minimis or variable limits before triggering disqualification. Some reach contributions by affiliated PACs, but some do not. Importantly, there exists no “common denominator” among these laws. For example, each uniquely defines covered affiliates, contracts, contribution recipients and periods.
Disclosure: Reports, Certifications and/or Notifications. In addition to disqualification rules and prohibitions, some laws require government contractors to make detailed disclosures during the contracting process affirming compliance with the “pay-to-play” (as well as other) laws.
As an example, prior to the award of a state or local government contract in New Jersey, businesses must file detailed certifications that no impermissible contributions were made that would require disqualification. These disclosures also ask about permissible contributions made by the company and certain affiliates.
Other laws require that government contractors disclose their campaign contributions in pre-contract or periodic filings submitted with the jurisdiction. New Jersey instituted a new annual filing in 2007. Maryland has required such disclosure for many years.
Connecticut law was partially rolled-back in early 2007 – partially by litigation concerning the disclosure of contributions by dependent minors of a contractor’s executives and by corrective legislation -- but still requires government contractors to inform those affiliated with it (including Board members and certain senior executives) of the state’s contribution restrictions.
The general parameters for the states noted in the chart above can be found referenced in Appendix A, under the columns for “Limits and Prohibitions” and “Disclosure (Other than Lobby Laws).”
You should consult a specialist or the appropriate governmental agency for assistance when determining whether a contribution will result in disqualification or disclosure. Because failure to comply with these laws can lead to the loss of a government contract as well as monetary penalty, coordination with your procurement and sales divisions (as well as with your registered lobbyists and lobby firms) is vital to compliance.
D. CONTRIBUTOR REPORTING REQUIREMENTS
In most states, only recipients report campaign contributions by filing periodic reports with state or local agencies disclosing the donor and amount of all contributions made above a certain dollar amount. However, in the following jurisdictions, contributors or corporations sponsoring PACs must also file reports, usually if they contribute over a certain amount. As discussed above in Section II B, separate disclosure requirements may exist for government contractors.
Jurisdictions with Contributor Reporting Requirements
Some states require contributors to file late period reports within 24 or 48 hours of making contributions during a certain number of days before an election. Additionally, some states require a corporation (or its lobbyists) to disclose campaign contributions on lobby reports, as discussed in another chapter of this book.
Many states require additional or separate disclosure of independent expenditures (i.e., communications and other expenditures expressly advocating the election or defeat of a candidate or ballot measure).
E. TRANSMITTAL LETTERS
Because of the uncertainty and risk of contributing to state and local candidates, especially from a multi-national corporation or its PAC in jurisdictions where it may not normally be active, the use of a carefully worded transmittal letter is advisable.
A contributor cannot “shift” legal liability to the recipient, but this transmittal letter can alert a candidate's treasurer to certain facts concerning the donor to help determine whether the contribution should be returned. Such a letter is also an indication of the contributor’s good faith. A contributor should consider including the following information in a transmittal letter:
● The transmittal letter should identify the donor by name, address and by corporate business (i.e., what the entity does to create the revenue from which the contribution is made).
● The letter should clarify the “true source” of the contribution (e.g., if the company has acted as an “intermediary” for another unit or if it is “affiliated” with other contributing companies under state law).
● The letter can instruct the recipient to return the check if there are any statutes that impose filing requirements on the donor because of this contribution if the donor does not want this obligation.
● If the donor is a corporate PAC, the letter should identify whether it is a federal PAC, whether its administrative and overhead costs are provided by a corporate sponsor and/or whether it is a specially created PAC to comply with the laws of that state. (Note that some states do not permit corporations to pay administrative or overhead costs; in those states the PAC should reimburse the corporation for such costs. See Appendix A.)
The sample transmittal letters in Appendix B only address the most common of these requirements. If your corporation plans to become involved in elections in several states, it should adopt a legal compliance and tracking program to insure that campaign finance limits are not exceeded and that all necessary reports are filed.
Copies of the transmittal letters and photocopies of the contribution checks should be maintained for at least three years to quickly respond to any inquiries.
III. FEDERAL PACS
Corporations may wish, or need, to contribute to state and local candidates using their federal PACs. Most states that prohibit direct corporate contributions permit contributions via a federal PAC. By contrast, some states that permit corporate contributions heavily regulate federal PACs active in the state. In a few states, using a federal PAC may not be a viable option given the administrative burdens and requirements. The treasurer of a federal PAC should consult the laws of a state before making contributions there.
Following is an overview of corporate federal PAC registration and reporting on the state level. State imposed contribution limits applicable to federal PACs and a short summary of these requirements are found in Appendix A.
Federal PACs may be required to register (or provide regulators or recipients with special documentation) before or soon after making a contribution to a state or local candidate or committee.
Note that many states permit federal PAC contributions up to a certain amount before requiring registration (e.g., $499, $500, $1,000; or certain percentage of contributions made or received in state, such as in Texas). Some states require registration only if the PAC solicits for the specific support or opposition to a state candidate (e.g., Nebraska).
Many states simply require that the federal PAC file a copy of its FEC Form 1, Statement of Organization, or provide a copy to contributors. Other states require registration as a state PAC. A few states require that federal PACs reimburse corporations for any portion of overhead cost attributable to activity in the state (e.g., Tennessee). A state may require in-state treasurers or agents. In some states registering your federal PAC in a state may be impractical. (Section D below).
B. REPORTING ON FEDERAL DEADLINES
About a dozen states generally permit federal PACs to report contributions to state and local candidates by filing copies of their FEC Form 3X with state officials according to the FEC filing schedule.
Some of these states that allow federal PACs to file copies of their federal reports limit the filing to include copies of only the pages that disclose the state and local contributions (e.g., Kentucky), while others mandate special cover sheets or addenda. Other states may require a local agent for filing (e.g. Vermont). Increasingly, states excuse federal PACs from filing paper copies if they electronically file their federal reports (e.g. Alabama and South Dakota).
C. REPORTING ON STATE DEADLINES
About half of the states require federal PACs contributing to state and local candidates over the applicable registration threshold to file reports on state deadlines, which may well differ from federal deadlines.
Some of these states only require such reports if contributions are made over a certain monetary threshold or during a certain time period. Many states permit federal PACs to attach print-outs of their Form 3X schedules of receipts and disbursements to state forms, although even in some of those states the reporting thresholds for individual contributors may be lower than those under federal law. Some states also require filing with local officials if the federal PAC makes local contributions (e.g., Arizona). Others require fairly rapid disclosure (e.g., Iowa and North Carolina).
D. FORMING A SEPARATE STATE PAC
A few states either prohibit or restrict federal PAC involvement, making federal PAC activity impractical if made over the registration threshold. Bank account, treasurer or other in-state requirements may not suit your federal PAC. Your PAC may be required to cover overhead expenses related to state contributions (e.g., Tennessee for corporate sponsors and New Jersey for certain regulated entities). Other states requiring careful scrutiny include: Alaska, Connecticut, Massachusetts, Minnesota, Missouri, New York and New Hampshire.
When state law makes using a federal PAC impractical or impossible, one alternative is to create a state PAC for exclusive use in that state or for use in multiple states.
E. REPORTING NOT NECESSARY
Several states do not require any reporting or registration by federal PACs as long as they are current on their federal filings, including: Idaho, Maryland, and West Virginia.
Again, if the federal PAC does not reach the monetary threshold for registering in the state, it also need not file reports (although some states, like Texas, require special notifications or certifications to recipients and/or state agencies even when a federal PAC remains below the registration and/or reporting threshold).
IV. JUDICIAL ELECTIONS
State elected officials and voters choose judges in one of three ways – by appointment, by election, or by a combination of the two. Nearly half of the states use a “merit” selection system to fill vacant seats, by which qualified candidates are submitted to a state executive for appointment, then face an uncontested “retention” election. Approximately thirteen states hold some form of nonpartisan elections for judges. Additionally, approximately eight states hold partisan elections for judges. In total, 39 states use some form of judicial election.
Contested judicial elections have become more like other elections, with expensive campaign budgets and expenditures by third parties. Donors should therefore treat contributions to judges or groups purporting to support judicial candidates like contributions to any other state or local candidate or PAC – considering the applicable monetary limits, time and person restrictions, disclosure requirements, potential disqualification and careful use of transmittal letters.
V. OTHER RESOURCES
The Executive's Handbook on Political Contributions
State and Federal Communications, Inc.
80 South Summit Street, Suite 100
Akron, Ohio 44308
(330) 761-9960; www.stateandfed.com Federal Campaign Election Laws
(updated through 10/05)
and Federal and State Campaign Finance Laws
Federal Election Commission
999 E Street, N.W.
Washington, D.C. 20463
(800) 424-9530 or (800) 694-1120; www.fec.gov Council on Government Ethics Laws (“COGEL”)
(For Annual Update on Campaign Finance Law/Litigation and Contact Information for State and Many Local Regulators)
P.O. Box 393
Athens, GA 30606
(706) 548-7758, www.cogel.org The websites of state campaign and election commissions often include up-to-date information. Links to these agencies can be found in some of the publications above or at www.nmgovlaw.com by clicking “Other Resources” and then “All State Ethics Agencies.”