New FEC Regulations Tighten Restrictions on State and Local Parties
New FEC Regulations Tighten Restrictions on State and Local Parties
By Bill Hall
Warner Norcross & Judd LLP
January 2006
In enacting regulations implementing the Bipartisan Campaign Reform Act ("BCRA"), the Federal Election Commission ("FEC") carved out a number of de minimus exemptions from the requirements of BCRA to make it easier for political party committees that engage in very little activity in connection with federal elections to comply with BCRA. In the past, this benefited many state, district and local Libertarian Party® political organizations. However, in Shays v. FEC, Congressman Christopher Shays and others successfully challenged the validity of many of these regulations in court. The FEC is now in the process of enacting new regulations repealing these exemptions, as required by the court. Within the past couple of months, the FEC has enacted two new repealing regulations that directly impact the operations of state, district and local political party organizations, including your organization.
To understand these recent changes in this very complex area of the law, you must first understand some of the terminology used in these new regulations - the concepts of "Federal Election Activity," "Federal-Related Activity," "Federal Funds," "Levin Funds" and "Nonfederal Funds." I urge you to skip to the end of this bulletin and review the short definitions for these terms before you read the rest of this bulletin, if you are not already comfortable you understand these terms.
Repeal of Exemption for Employees Who Spend 25% or Less of Their Time on Federal-Related Activity
BCRA required that the compensation of committee employees spending more than 25% of their time on Federal-Related Activity be paid entirely from Federal Funds. When the FEC enacted a regulation implementing this law, it addressed committee employees spending 25% or less of their compensated time on Federal-Related Activity, by expressly providing that their compensation could be paid entirely from Nonfederal Funds. The Shays Court invalidated this exemption.
The FEC has now enacted a new regulation, effective January 19, 2006, which requires that the compensation of committee employees spending 25% or less of their compensated time on Federal-Related Activity be paid from a mixture of Federal Funds and Nonfederal Funds. If the employee spends no compensated time on Federal-Related Activities, then you may pay all the employee's compensation with Nonfederal Funds. Otherwise, you must pay that employee's compensation from the same ratio of Federal Funds and Nonfederal Funds as you are required to pay your organization's other administrative costs, i.e., on the "Fixed Percentage Allocation Method" (see chart below).
FIXED PERCENTAGE ALLOCATION METHOD
Presidential /Senate Candidates on Ballot in your State Federal Funds Share
Year in which President but no Senate on ballot, or previous year 28% federal
Year in which both President and Senate on ballot, or previous year 36% federal
Year in which Senate but no President on ballot, or previous year 21% federal
Year in which neither President nor Senate on ballot, or previous year 15% federal
Repeal of $5,000 Exemption for Disbursement of Levin Funds
While BCRA required that some Federal Election Activity be funded entirely from Federal Funds, it permitted other Federal Election Activity to be funded from a mixture of Federal Funds and Levin Funds, as described below in "Some Important Definitions." The allocation ratio is the same ratio as for other committee administrative costs, as set forth in the accompanying chart. When the FEC enacted a regulation implementing this law, it included a de minimus exemption to this rule, permitting the first $5,000 of Federal Election Activity to be paid entirely from Nonfederal Funds. The Shays Court invalidated this exemption.
The FEC has now enacted a new regulation, which took effect December 19, 2005, and requires that your political organization fund all Federal Election Activity from a mixture of Federal Funds and Levin Funds, using the same allocation ratio.
What This Means for You
What does this means for your political party organization's operations?
First, it means you must take care to fund more of your operations only with Federal Funds. Whether or not your political party organization has met the thresholds requiring it to file with and regularly report to the FEC as a political committee, you are legally required to ensure that it only uses Federal Funds to pay the costs of Federal-Related Activity required to be paid with Federal Funds. You are required to keep records demonstrating that you have complied with the requirements of federal campaign finance law in raising those funds. Theoretically, the FEC may ask to review your records and fine or imprison you if you have not complied with the law. Effectively, this means that you must upgrade the scope of your record-keeping, so you can demonstrate you used Federal Funds when required to do so.
Second, you must invest more time and energy raising Federal Funds, to meet your increased requirements for Federal Funds. Generally speaking, the contribution limits, reporting requirements (if your committee files reports with the FEC) and prohibitions against accepting certain contributions (e.g., corporate contributions) are much stricter for Federal Funds than for Levin Funds and/or Nonfederal Funds. Now, even more than in the past, you must wrestle with those requirements.
Some Important Definitions
"Federal Election Activity" means certain activities, other than direct contributions to a candidate for federal office, in connection with a federal election or for the purpose of influencing any election for federal office. Federal Election Activity includes activities such as voter registration within 120 days prior to a federal election, and voter identification activity, generic (e.g., "Vote Libertarian") campaign activity, and get-out-the-vote activity in connection with a federal election, the cost of which must be paid entirely in Federal Funds, or allocated between Federal Funds and Levin Funds. For example, contacting voters and asking them to vote or placing generic "Vote Libertarian" yard signs in an election that has both federal and state candidates on the ballot is Federal Election Activity, even though your purpose in doing so is to boost the vote totals of your state and local candidates. Federal Election Activity also includes activities such as many communications supporting or opposing federal candidates, and the services of committee employees spending more than 25% of their compensated time in connection with Federal-Related Activity, the cost of which must be paid entirely from Federal Funds.
"Federal-Related Activity" includes both Federal Election Activity, and more traditional activities intended to influence a federal election, such as contributions to federal candidates or expenditures supporting or opposing federal candidates.
"Federal Funds," sometimes called "Hard Money," means funds raised and spent in accordance with the contribution limits and prohibitions and solicitation requirements of federal campaign finance laws.
"Levin Funds" are a hybrid type of funds that are raised in accordance with state campaign finance laws, but may be used in lieu of Federal Funds for the funding of certain Federal Election Activity, as noted above. They are neither Nonfederal Funds nor Federal Funds. Different contribution limits apply to them than those that would otherwise apply under state law.
"Nonfederal Funds," sometimes called "Soft Money," means funds raised and spent in accordance with the contribution limits and prohibitions and solicitation requirements of state, and not federal, campaign finance laws. For example, this would include funds raised, spent and reported under state campaign finance laws for the purpose of influencing any election for state office or a state ballot initiative. It would also include funds raised and spent for indirect political purposes that are not required to be reported under state campaign finance laws. The hallmark of Nonfederal Funds is that they are not raised and spent for the purpose of influencing any election for federal office.
*
For more information on your political party organization's obligation to use Federal Funds for its Federal-Related Activities, see Bill Hall's article in the April 2005 Libertarian Party® News "Complying With BCRA and FEC Regulations on Federal Fundraising." For some thoughts on limiting the liability of your political organization's leaders, see Bill Hall's article in the December 2004 Libertarian Party® News "Incorporating Your State Political Committee."
This message is provided to advise you of recent federal campaign finance law developments. Because each situation is different, this information is intended for general information purposes only and is not intended to provide legal advice on any specific facts and circumstances.
By Bill Hall
Warner Norcross & Judd LLP
January 2006
In enacting regulations implementing the Bipartisan Campaign Reform Act ("BCRA"), the Federal Election Commission ("FEC") carved out a number of de minimus exemptions from the requirements of BCRA to make it easier for political party committees that engage in very little activity in connection with federal elections to comply with BCRA. In the past, this benefited many state, district and local Libertarian Party® political organizations. However, in Shays v. FEC, Congressman Christopher Shays and others successfully challenged the validity of many of these regulations in court. The FEC is now in the process of enacting new regulations repealing these exemptions, as required by the court. Within the past couple of months, the FEC has enacted two new repealing regulations that directly impact the operations of state, district and local political party organizations, including your organization.
To understand these recent changes in this very complex area of the law, you must first understand some of the terminology used in these new regulations - the concepts of "Federal Election Activity," "Federal-Related Activity," "Federal Funds," "Levin Funds" and "Nonfederal Funds." I urge you to skip to the end of this bulletin and review the short definitions for these terms before you read the rest of this bulletin, if you are not already comfortable you understand these terms.
Repeal of Exemption for Employees Who Spend 25% or Less of Their Time on Federal-Related Activity
BCRA required that the compensation of committee employees spending more than 25% of their time on Federal-Related Activity be paid entirely from Federal Funds. When the FEC enacted a regulation implementing this law, it addressed committee employees spending 25% or less of their compensated time on Federal-Related Activity, by expressly providing that their compensation could be paid entirely from Nonfederal Funds. The Shays Court invalidated this exemption.
The FEC has now enacted a new regulation, effective January 19, 2006, which requires that the compensation of committee employees spending 25% or less of their compensated time on Federal-Related Activity be paid from a mixture of Federal Funds and Nonfederal Funds. If the employee spends no compensated time on Federal-Related Activities, then you may pay all the employee's compensation with Nonfederal Funds. Otherwise, you must pay that employee's compensation from the same ratio of Federal Funds and Nonfederal Funds as you are required to pay your organization's other administrative costs, i.e., on the "Fixed Percentage Allocation Method" (see chart below).
FIXED PERCENTAGE ALLOCATION METHOD
Presidential /Senate Candidates on Ballot in your State Federal Funds Share
Year in which President but no Senate on ballot, or previous year 28% federal
Year in which both President and Senate on ballot, or previous year 36% federal
Year in which Senate but no President on ballot, or previous year 21% federal
Year in which neither President nor Senate on ballot, or previous year 15% federal
Repeal of $5,000 Exemption for Disbursement of Levin Funds
While BCRA required that some Federal Election Activity be funded entirely from Federal Funds, it permitted other Federal Election Activity to be funded from a mixture of Federal Funds and Levin Funds, as described below in "Some Important Definitions." The allocation ratio is the same ratio as for other committee administrative costs, as set forth in the accompanying chart. When the FEC enacted a regulation implementing this law, it included a de minimus exemption to this rule, permitting the first $5,000 of Federal Election Activity to be paid entirely from Nonfederal Funds. The Shays Court invalidated this exemption.
The FEC has now enacted a new regulation, which took effect December 19, 2005, and requires that your political organization fund all Federal Election Activity from a mixture of Federal Funds and Levin Funds, using the same allocation ratio.
What This Means for You
What does this means for your political party organization's operations?
First, it means you must take care to fund more of your operations only with Federal Funds. Whether or not your political party organization has met the thresholds requiring it to file with and regularly report to the FEC as a political committee, you are legally required to ensure that it only uses Federal Funds to pay the costs of Federal-Related Activity required to be paid with Federal Funds. You are required to keep records demonstrating that you have complied with the requirements of federal campaign finance law in raising those funds. Theoretically, the FEC may ask to review your records and fine or imprison you if you have not complied with the law. Effectively, this means that you must upgrade the scope of your record-keeping, so you can demonstrate you used Federal Funds when required to do so.
Second, you must invest more time and energy raising Federal Funds, to meet your increased requirements for Federal Funds. Generally speaking, the contribution limits, reporting requirements (if your committee files reports with the FEC) and prohibitions against accepting certain contributions (e.g., corporate contributions) are much stricter for Federal Funds than for Levin Funds and/or Nonfederal Funds. Now, even more than in the past, you must wrestle with those requirements.
Some Important Definitions
"Federal Election Activity" means certain activities, other than direct contributions to a candidate for federal office, in connection with a federal election or for the purpose of influencing any election for federal office. Federal Election Activity includes activities such as voter registration within 120 days prior to a federal election, and voter identification activity, generic (e.g., "Vote Libertarian") campaign activity, and get-out-the-vote activity in connection with a federal election, the cost of which must be paid entirely in Federal Funds, or allocated between Federal Funds and Levin Funds. For example, contacting voters and asking them to vote or placing generic "Vote Libertarian" yard signs in an election that has both federal and state candidates on the ballot is Federal Election Activity, even though your purpose in doing so is to boost the vote totals of your state and local candidates. Federal Election Activity also includes activities such as many communications supporting or opposing federal candidates, and the services of committee employees spending more than 25% of their compensated time in connection with Federal-Related Activity, the cost of which must be paid entirely from Federal Funds.
"Federal-Related Activity" includes both Federal Election Activity, and more traditional activities intended to influence a federal election, such as contributions to federal candidates or expenditures supporting or opposing federal candidates.
"Federal Funds," sometimes called "Hard Money," means funds raised and spent in accordance with the contribution limits and prohibitions and solicitation requirements of federal campaign finance laws.
"Levin Funds" are a hybrid type of funds that are raised in accordance with state campaign finance laws, but may be used in lieu of Federal Funds for the funding of certain Federal Election Activity, as noted above. They are neither Nonfederal Funds nor Federal Funds. Different contribution limits apply to them than those that would otherwise apply under state law.
"Nonfederal Funds," sometimes called "Soft Money," means funds raised and spent in accordance with the contribution limits and prohibitions and solicitation requirements of state, and not federal, campaign finance laws. For example, this would include funds raised, spent and reported under state campaign finance laws for the purpose of influencing any election for state office or a state ballot initiative. It would also include funds raised and spent for indirect political purposes that are not required to be reported under state campaign finance laws. The hallmark of Nonfederal Funds is that they are not raised and spent for the purpose of influencing any election for federal office.
*
For more information on your political party organization's obligation to use Federal Funds for its Federal-Related Activities, see Bill Hall's article in the April 2005 Libertarian Party® News "Complying With BCRA and FEC Regulations on Federal Fundraising." For some thoughts on limiting the liability of your political organization's leaders, see Bill Hall's article in the December 2004 Libertarian Party® News "Incorporating Your State Political Committee."
This message is provided to advise you of recent federal campaign finance law developments. Because each situation is different, this information is intended for general information purposes only and is not intended to provide legal advice on any specific facts and circumstances.
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